BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  SB 1163|
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                              UNFINISHED BUSINESS


          Bill No:  SB 1163
          Author:   Leno (D), et al
          Amended:  8/25/10
          Vote:     21

           
           SENATE HEALTH COMMITTEE  :  5-0, 4/21/10
          AYES:  Alquist, Leno, Negrete McLeod, Pavley, Romero
          NO VOTE RECORDED:  Strickland, Aanestad, Cedillo, Cox
           
          SENATE APPROPRIATIONS COMMITTEE  :  7-3, 5/27/10
          AYES:  Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee
          NOES:  Denham, Walters, Wyland
          NO VOTE RECORDED:  Cox

           SENATE FLOOR  :  23-12, 6/3/10
          AYES:  Alquist, Calderon, Cedillo, Corbett, DeSaulnier,  
            Ducheny, Florez, Hancock, Kehoe, Leno, Liu, Lowenthal,  
            Negrete McLeod, Oropeza, Padilla, Pavley, Price, Romero,  
            Simitian, Steinberg, Wiggins, Wolk, Yee
          NOES:  Aanestad, Ashburn, Cogdill, Correa, Denham, Dutton,  
            Huff, Runner, Strickland, Walters, Wright, Wyland
          NO VOTE RECORDED:  Cox, Harman, Hollingsworth, Vacancy,  
            Vacancy

           SENATE HEALTH COMMITTEE  :  6-2, 8/31/10
          AYES:  Alquist, Cedillo, Leno, Negrete McLeod, Pavley,  
            Romero
          NOES:  Strickland, Aanestad
          NO VOTE RECORDED:  Vacancy

           ASSEMBLY FLOOR  :  56-21, 8/30/10 - See last page for vote

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           SUBJECT  :    Health care coverage:  denials:  premium rates

           SOURCE  :     Health Access California


           DIGEST  :    This bill requires health care service plans  
          (health plans) and health insurers to file with the  
          Department of Managed Health Care and the Department of  
          Insurance (regulators) specified rate information for  
          individual and small group at least 60 days prior to  
          implementing any rate change.  Requires rate filings to be  
          actuarially sound and to include a certification by an  
          independent actuary that any increase is reasonable or  
          unreasonable.  Requires the filings in the case of large  
          group contracts only for unreasonable rate increases, as  
          defined by the Patient Protection and Affordable Care Act  
          (Public Law 111-148), prior to implementing any such rate  
          change.  Increases, from 30 days to 60 days, the amount of  
          time that health plan or insurer provides written noticed  
          to an enrollee or insured before a change in premium rates  
          or coverage becomes effective.  Requires health plans and  
          insurers that decline to offer coverage to or deny  
          enrollment for a large group applying for coverage or that  
          offer small group coverage at a rate that is higher than  
          the standard employee risk rate to, at the time of the  
          denial or offer of coverage, provide the applicant with  
          reason for the decision, as specified. 

           Assembly Amendments  require a health care service plan or  
          health insurer to file rate information with the Department  
          of Managed Health Care or the Department of Insurance, as  
          specified, and requires that the information be made  
          publicly available, as specified.  The amendments authorize  
          the departments to review these filings and conduct a  
          public hearing under specified circumstances and requires  
          the departments to post certain findings on their Internet  
          Web sites.

           ANALYSIS  :    Existing law requires health plans and health  
          insurers that decline to offer coverage or that deny  
          enrollment of an individual or his/her dependents applying  
          for individual coverage, or that offer individual coverage  
          at a rate that is higher than the standard rate, to provide  

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          the individual applicant with the specific reason for the  
          decision in writing at the time of the denial or offer of  
          coverage.

          Existing law prohibits health plans from changing the  
          premium rate or coverage for an individual plan contract  
          unless the plan has delivered a written notice of the  
          change at least 30 days prior to the effective date of the  
          contract renewal, or the date on which the rate or coverage  
          changes.  Existing law requires a notice of an increase in  
          the premium rate to include the reasons for the rate  
          increase.

          Existing law requires individual health plans and health  
          insurers to have written policies, procedures, or  
          underwriting guidelines establishing the criteria and  
          process by which the plan or insurer makes its decision to  
          provide or to deny coverage to individuals applying for  
          coverage, and sets the rate for that coverage.  These  
          guidelines, policies, or procedures are required to assure  
          that the plan rating and underwriting criteria comply with  
          all other applicable provisions of state and federal law.

          Existing law requires health plans and health insurers to  
          annually file with its regulator a general description of  
          the criteria, policies, procedures, or guidelines the plan  
          or insurer uses for rating and underwriting decisions  
          related to individual health plan contracts, including  
          automatic declinable health conditions, health conditions  
          that may lead to a coverage decline, height and weight  
          standards, health history, health care utilization,  
          lifestyle, or behavior that might result in a decline for  
          coverage or severely limit the plan products for which they  
          would be eligible.  

          Existing law permits a plan or insurer to comply with this  
          requirement by submitting to its regulator underwriting  
          materials or resource guides provided to plan solicitors or  
          solicitor firms, provided that those materials include the  
          information required to be submitted. 
          
          This bill:

           Rate Review 

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           1. Requires health plans and insurers to file with  
             regulators all required rate information for individual  
             and small group at least 60 days prior to implementing  
             any rate change.  Requires the filings in the case of  
             large group contracts only for unreasonable rate  
             increases, as defined by the Patient Protection and  
             Affordable Care Act (PPACA), at least 60 days prior to  
             implementing any such rate change. 

          2. Requires health plans and insurers, for individual and  
             small group contracts, to disclose to regulators  
             information regarding identifying and contact  
             information, contract forms, product and segment type,  
             enrollment, annual rates, earned premiums, incurred  
             claims, average rate increases and effective date of  
             increase, review category, number of affected  
             subscribers/enrollees, overall annual medical trend  
             factor assumptions, amount of the projected trend  
             attributable to the use of certain factors, claims cost  
             and rate of changes, enrollee/insured cost-sharing,  
             changes in benefits and administrative costs, actuarial  
             certification, consumer inquiries and complaints, and  
             any other information required to be reported under  
             PPACA. 

          3. Requires health plan subject to #1 above to also  
             disclose specified aggregate data for all rate filings  
             in the individual and small group health plan markets  
             related to the number and percentage of rate filings and  
             the plan's average rate increase by the categories, as  
             specified. 

          4. Permits regulators to require health plans and insurers  
             to submit all rate filings to the National Association  
             of Insurance Commissioners' System for Electronic Rate  
             and Form Filing (SERFF).  Requires submission of rate  
             filings to SERFF to be deemed to be filing with  
             regulators for purposes of compliance with the rate  
             filing requirements of this bill, but requires plans and  
             insurers to submit any other information required to  
             comply with this bill. 

          5. Requires rate filings to be actuarially sound and to  

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             include a certification by an independent actuary or  
             actuarial firm that the rate increase is reasonable or  
             unreasonable and, if unreasonable, that the  
             justification for the increase is based on accurate and  
             sound actuarial assumptions and methodologies. 

          6. Requires plans and insurers to contract with an  
             independent actuary to comply with #5 above.  Prohibits  
             the actuary or actuarial firm from being be an affiliate  
             or a subsidiary of, nor in any way owned or controlled  
             by, a health plan, health insurer, or a trade  
             association of health plans or insurers.  Prohibits a  
             contracted actuary or actuarial firm board member,  
             director, officer, or employee from serving as a board  
             member, director, or employee of a health plan or  
             insurer.  Prohibits a health plan, health insurer, or a  
             trade association of health plans board member,  
             director, or officer from serving a board member,  
             director, officer, or employee of the actuary or  
             actuarial firm. 

          7. Prohibits anything in this bill from being construed to  
             permit regulators to establish rates for contractual  
             health care services. 

          8. Requires all information submitted under this bill to be  
             made publicly available by regulators except, that  
             contracted rates between a health plan or insurer and a  
             provider or a large group are deemed confidential  
             information that will not be made public. 

          9. Requires all information to be submitted to regulators  
             electronically. Requires the information below to be  
             made available on regulators' and plan/insurers Web  
             sites, as specified, 60 days prior to the implementation  
             of the rate increase: 

             A.    Justifications for any unreasonable rate  
                increases, including all information and supporting  
                documentation as to why the rate increase is  
                justified.

             B.    Overall annual medical trend factor assumptions in  
                each rate filing for all benefits.

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             C.    Actual costs by aggregate benefit category to  
                include hospital inpatient, hospital outpatient,  
                physician services, prescription drugs, and other  
                ancillary services, laboratory, and radiology. 

             D.    The amount of the projected trend attributable to  
                the use of services, price inflation, or fees and  
                risk for annual plan contract trends by aggregate  
                benefit category, such as hospital inpatient,  
                hospital outpatient, physician services, prescription  
                drugs and other ancillary services, laboratory, and  
                radiology.  Requires a health plan or insurer that  
                exclusively contracts with no more than two medical  
                groups to instead disclose the amount of their actual  
                trend experience for the prior contract year by  
                aggregate benefit category, using benefit categories  
                that are to the maximum extent possible the same or  
                similar to those used by other plans. 

          10.Requires regulators to accept and post to their websites  
             any public comment on a rate increase submitted during  
             the 60-day period in #9 above. 

          11.Exempts a number of programs and contracts from the rate  
             review provisions, including specialized health plan  
             contracts, Medicare supplement plans; Medi-Cal managed  
             care, Healthy Families Program, Access for Infants and  
             Mothers Program, the California Major Risk Medical  
             Insurance Program, the Federal Temporary High Risk Pool,  
             and health plan conversion contracts. 

          12.Permits regulators, in consultation with each other and  
             on or after July 1, 2012, to issue guidance to plans and  
             insurers regarding compliance with this bill.  Exempts  
             such guidance from being subject to the Administrative  
             Procedure Act.  Requires regulators to consult with each  
             other when issuing guidance, adopting necessary  
             regulations, or posting information on their Web sites. 

          13.Permits regulators, whenever it appears that any person  
             has engaged, or is about to engage, in any act or  
             practice constituting a violation of this bill,  
             including the filing of inaccurate or unjustified rates  

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             or inaccurate or unjustified rate information, to review  
             the rate filing to ensure compliance with the law. 

          14.Permits regulators to review other filings. 

          15.Requires regulators to report at least quarterly to the  
             Legislature on all unreasonable rate filings. 

          16.Requires regulators to post on its Web site any changes  
             to the proposed rate increase, including any  
             documentation supporting those changes.  Requires  
             regulators to post findings on its Web site if it finds  
             that an unreasonable rate increase is not justified or  
             that a rate filing contains inaccurate information. 

          17.Requires regulators, in a manner consistent with  
             applicable federal laws, rules, and regulations, to: 

             A.    Provide data to the Secretary of the United States  
                Department of Health and Human Services on health  
                care service plan rate trends in premium rating  
                areas.

             B.    Provide to the California Health Benefit Exchange  
                (established pursuant to PPACA) commencing with its  
                creation, such information as may be necessary to  
                allow compliance with federal law, roles,  
                regulations, and guidance. 

           Consumer Notification 

           18.Requires health plans and insurers that decline to offer  
             coverage to or deny enrollment for a large group  
             applying for coverage or that offer group coverage at a  
             rate that is higher than the standard rate to, at the  
             time of the denial or offer of coverage, provide the  
             applicant with the specific reason or reasons for the  
             decision in writing, in clear, easily understandable  
             language, as specified. 

          19.Increases, from 30 days to 60 days, the amount of time  
             that a health plan or an insurer provides written  
             noticed to an enrollee or insured before a change in  
             premium rates or coverage becomes effective.  Requires  

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             the notice in #18 above, and written notices regarding  
             rate changes in existing law to be in 12-point type. 

           Grandfathered Plans 

           20.Deems a health plan or a health insurer to be in  
             compliance with the requirement in the small employer  
             health insurance law that health plans and health  
             insurers fairly, affirmatively offer, market and sell  
             all of the benefit plans designs it makes available  
             (known as the "all products" requirement) with respect  
             to grandfathered plan contracts under PPACA, as long as:  


             A.    The plan/insurer offers to renew the grandfathered  
                plan contract unless the plan withdraws the plan  
                contract/policy from the small employer market. 

             B.    The plan/insurer provides appropriate notice of  
                the grandfathered status of the plan in any materials  
                provided to an enrollee of the contract describing  
                the benefits provided under the contract, as required  
                under PPACA. 

             C.    The plan/insurer makes no changes to the benefits  
                set forth in the grandfathered plan contract other  
                than those required by state or federal law,  
                regulation, rule or guidance and those permitted to  
                be made to a grandfathered plan under PPACA. 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

          According to the Senate Appropriations Committee:

                          Fiscal Impact (in thousands)

            Major Provisions      2010-11     2011-12     2012-13     Fund  

           DMHC review of data           $240      $130       
           $140Special*
           CDI review of data            $125      $210       
           $210Special**


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            *   Managed Care Fund
            **  Insurance Fund

           SUPPORT  :   (Verified  5/27/10) (Unable to reverify)

          Health Access California (source)
          American Federation of State, County and Municipal  
          Employees
          California Alliance for Retired Americans
          California Chiropractic Association
          California Pan-Ethnic Health Network
          California Retired Teachers Association
          California School Employees Association
          California Teachers Association
          Congress of California Seniors
          Consumers Union

           OPPOSITION  :    (Verified  5/27/10) (Unable to reverify)

          Anthem Blue Cross
          Association of California Life and Health Insurance  
          Companies
          California Association of Health Plans
          Health Net

           ARGUMENTS IN SUPPORT  :    According to the author, this bill  
          seeks to provide California consumers, regulatory agencies  
          and policymakers with critical information regarding the  
          actuarial basis and justification for premium increases as  
          well as data regarding denial and coverage rates.  

          The author states that the provisions of this bill  
          requiring detailed data and actuarial justification for  
          premium increases and non-standard premium charges are  
          necessary in response to provisions contained in the  
          recently enacted federal health reform legislation  
          requiring California regulatory agencies to provide  
          detailed information regarding premium trends and to  
          identify inappropriate premium increases.  In addition, the  
          author states the recent public furor over annual premium  
          rate hikes as high as 39 percent led policymakers and  
          regulators, including the Attorney General, to seek  
          detailed information justifying the rate increases.   
          Failure to comply with these requests forced the Attorney  

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          General to file subpoenas seeking the kind of information  
          that regulators are required to provide to the federal  
          government 

          The author states that uncontrolled increases in health  
          care premiums are bankrupting California families and  
          businesses.  According to a 2009 Kaiser Family Foundation  
          report, premiums for employer-based health insurance have  
          more than doubled since 2000, a growth rate three times  
          that of wages.  The same report found that worker  
          out-of-pocket financial liability has dramatically  
          increased since 2006.  By 2025, one in every four dollars  
          in our nation's economy will be spent on health care.

          This bill increases the length of notice time that plans  
          and insurers must provide to purchasers of individual  
          coverage who experience changes in rates or coverage, from  
          30 days to 180 days, and extends this 180-day notice  
          requirement to group purchasers.  The author states this  
          change is intended to provide consumers with adequate time  
          to research and shop for comparable products as 30 days is  
          completely insufficient for consumers to either make  
          alternative arrangements for coverage, or to plan for the  
          increased burden for their household or business.  Finally,  
          this bill additionally requires plans and insurers to  
          report detailed information regarding their coverage and  
          denial rates in the individual and large group market  
          (small group purchasers are protected with guaranteed issue  
          of coverage).  

          Rather than constructively working with providers to lower  
          costs and premiums, the author and bill's sponsors contend  
          that health plans and insurers have responded to the  
          premium backlash by increasing their efforts to identify  
          and reduce high-risk consumers from their products.   
          Because any group of patients who are identified as likely  
          to cost more than the premiums they will pay are  
          unprofitable to the plan or insurer, there is a competitive  
          disincentive to maintain good coverage for groups of  
          Californians who have high medical costs.  Because of this  
          competitive disincentive, the author argues this means that  
          certain geographic areas, women and occupations are  
          potentially being singled out for coverage denials.   
          Unfortunately, there is little available data regarding  

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          coverage and denial decisions made by insurance companies.   
          The author asserts obtaining such information is absolutely  
          paramount to ensuring fair access to health care coverage  
          for all Californians. 

           ARGUMENTS IN OPPOSITION  :    The California Association of  
          Health Plans (CAHP) argues that this bill requires health  
          plans and insurers to disclose the basic competitive  
          factors that shape the marketplace.  CAHP argues this  
          information has no value to consumers because consumers are  
          protected by extensive statutory and regulatory provisions  
          to ensure that health care coverage is provided fairly.   
          Federal anti-trust law was designed to protect consumers by  
          prohibiting competitors from sharing information about  
          future or present pricing, allowances, premiums, costs,  
          profits, profit margins, market studies, or strategies.

          CAHP argues this bill, in contrast to federal anti-trust  
          law and state law, illuminates the competitive factors  
                                                                        behind pricing, premiums, and market strategy for health  
          plans and insurers, and CAHP fails to see the value in this  
          requirement.  Finally, CAHP argues that federal health care  
          reform will completely change the health insurance market  
          in California and across the country, and requiring health  
          plans to post detailed information regarding underwriting  
          is a waste of precious health care resources, because,  
          starting in 2014, individuals may not be declined coverage  
          and underwriting will be changed to reflect federal rating  
          restrictions.  

          HealthNet argues that extending the 30-day notice to six  
          months is an unreasonably long period of time to allow for  
          any modifications of premiums and benefits, especially as  
          it relates to changes to drug formularies.  Finally,  
          HealthNet and Anthem Blue Cross argue the administrative  
          effort and costs to implement the changes and reporting  
          requirements of this bill are difficult to justify when  
          they are likely to change when the federal government  
          issues its guidelines.


           ASSEMBLY FLOOR  : 
          AYES:  Ammiano, Arambula, Bass, Beall, Block, Blumenfield,  
            Bradford, Brownley, Buchanan, Caballero, Charles  

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            Calderon, Carter, Chesbro, Coto, Davis, De La Torre, De  
            Leon, Eng, Evans, Feuer, Fletcher, Fong, Fuentes, Gaines,  
            Galgiani, Gatto, Gilmore, Hagman, Hall, Hayashi,  
            Hernandez, Hill, Huber, Huffman, Lieu, Bonnie Lowenthal,  
            Ma, Mendoza, Monning, Nava, Nestande, Norby, V. Manuel  
            Perez, Portantino, Ruskin, Salas, Saldana, Skinner,  
            Solorio, Swanson, Torlakson, Torres, Torrico, Villines,  
            Yamada, John A. Perez
          NOES:  Adams, Anderson, Bill Berryhill, Tom Berryhill,  
            Conway, Cook, DeVore, Fuller, Garrick, Harkey, Jeffries,  
            Jones, Knight, Logue, Miller, Niello, Nielsen, Silva,  
            Smyth, Audra Strickland, Tran
          NO VOTE RECORDED:  Furutani, Vacancy, Vacancy


          CTW:mw  8/31/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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